Because retirees use more health care services, retiree costs are much higher and increase at a faster rate than do the costs for active employees. That is why the retiree premium increase is higher than for actives. Please note that the retiree rate of cost increase for 2020 is actually higher than 3.2% and the state is subsidizing this difference through direct appropriation into a Trust fund set up just for retiree health costs. If not for this subsidy, the retiree premium increase would actually be much higher than 3.2%.
In 2018 the way that public entities, like the state, are required to account for retiree health care costs changed. Going forward, the state has to account for all of the future retiree health care costs, not just those that are paid each year.
Because this new liability is so great, the General Assembly established a separate Trust for retiree health to ensure that funds will be available to pay retiree health claims now and in the future. This Trust provides a secure and stable source of state funding for retiree health costs. Each year the General Assembly approves additional funding to ensure that the state will be able to pay these future costs. This required separating the retiree costs from the active employee costs so that the Trust funds approved by the legislature go to pay for the retiree costs.
Each year the State Insurance Committee sets retiree premiums based on retiree costs and state funding, which is how the Committee sets all premiums. The retiree rate of cost increase is actually higher than 3.2% and the state subsidizes this difference through direct appropriation into the Trust. If not for this subsidy, the retiree rate increase would be much higher than 3.2%.